Newsletter Watch: Xinyuan Real Estate
Currently living in both New York and London, having worked as a financial journalist around the globe, and speaking seven languages, Vivian Lewis is as "international" as one can get.
Lewis has spent decades searching worldwide for growth and income opportunities that often aren’t on the radar screens of most advisors. "I try to avoid broad-brush macro-economic investing in favor of a diversified portfolio of lesser-known small-cap stellar stocks," she says. "Keeping all your money on Wall Street in dollars is one of the biggest mistakes U.S. investors can make. By sticking with the dollar, you are holding an inflation-battered currency losing value against others."
Lewis' ongoing analysis can be found in her Global Investing newsletter (www.rightside.com), which has consistently been ranked among the top long-term performers by the Hulbert Financial Digest.
Lewis focuses on investments that U.S. investors can buy with ease — such as ADRs, closed-end funds and ETFs — without the added risks of investing on foreign exchanges.
"My mission is to get U.S. investors to expand their portfolios overseas," she says. (For those comfortable with the complexities of investing abroad, Lewis also publishes
GlobalInvestingPRO.)
Having just spent several weeks touring China, Lewis has uncovered several intriguing new ideas, including one small-cap stock in the homebuilding sector — Xinyuan Real Estate (NYSE:XIN), with a market cap of $568 million. (XIN, Lewis tells us, is pronounced like “chin.”)
"My latest Chinese stock pick is a smaller entrepreneurial offshore Chinese newcomer," Lewis says. Offshore China? Indeed, while the company is headquartered in Beijing and its operations are in China, the company itself is based in the Cayman Islands.
This corporate set-up, while a bit confusing, is beneficial for investors, Lewis says. "The company is headed by an architect who is close to the government, although he had the good sense to incorporate Xinyuan Real Estate in the Cayman Islands," she explains.
Regarding its corporate makeup, she also says that the board chairman, Yong Zhang, his wife, the COO, his cousin, the CPA, plus other insiders, control 61% of the operations of the company.
As to its operations, she says that the company puts up apartment buildings in second-tier cities, starting with Zhengzhou, where it got started in 1997.
"It is now branching out into more cities where people want to live, among them Suzhou, which I visited in March, a pretty place with charming (partly reconstructed) canal-side commerce about a quarter hour from Shanghai by bullet train,” Lewis says. “Another target is Jinan, another commuter city for Shanghai."
The company is also building projects in Chengdu, a city that Lewis notes is "quite charmless and very polluted." But, she adds, it is growing fast because of the flooding of riverside villages by the Three Gorges Dam. Other cities XIN builds in are Hefei and Kunshan.
Looking forward, the advisor says, "XIN has been buying developable land in China to go on building high-rise apartments, and related commercial sites. It has 2.5 million million square meters of land — enough to build on over the next 18 to 24 months. Then it will buy more." Yes, its "million million" Vivian asserts, adding, "Remember, we're in China."
Meanwhile, she says that the stock has fallen from its late 2007 initial public offering when it came out at $14, underwritten by Merrill and JP Morgan.
"Its initial prospectus sounded too good to be true: growth in '07 revenues was up 117.6% over '06 to $309.7 million; net profit was up 163.8% to $42.5 million. There also were 33% gross margins and 13.75% profit margins,” she says, pointing out that it’s a fast-growing company from a respectable base, and has a good rep in China.
As to its performance, "XIN followed its IPO with a sales report, unaudited, for Q1 of this year, showing RMB1.064 billion in sales, up from prior-year RMB135 billion. (Sales are not completions, and are projected prior to value recognition. The audited Q1 figures will be reported only on June 3)," Lewis says.
She also points out that stock does not pay a dividend, which is one reason she believes that the stock has declined. Another reason, she says, is that the chairman recently warned that austerity and higher interest rates are possible this year, which could nip growth from the prior-year levels. But, she says, "Considering the prior-year growth levels, a bit of nipping can be tolerated."
Moreover, she adds that XIN is liked by analysts, expected by consensus to report profits of $1.20 per share this year versus $5.44 per share last year. That means it is trading at 8 times forward earnings, she says.
Finally, we note that in light of the recent earthquake in China, Xinyuan Real Estate Co., Ltd. has issued a press release announcing that there was no damage at the site of its development projects in Chengdu. The company also noted that it uses anti-seismic reinforced concrete walls and that there was no known reported damage to other buildings in Chengdu, which use this construction method.
Steven Halpern has just compiled a 35-page report on alternative energy, featuring the favorite solar, wind, nuclear, coal and natural gas stocks from the nation's leading financial newsletter advisors. The report is available for free to all Small Cap Newsletter readers.
About the Author
As a newsletter editor and financial journalist, Steven Halpern has covered the investment newsletter industry for 25 years.
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